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Andreas Fuchs

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Deutsche Telekom raises full-year guidance for adjusted EBITDA AL and cash capex

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  • Revenue up 4.8 percent in the third quarter to 20.0 billion euros
  • Adjusted EBITDA AL up 5.4 percent to 6.5 billion euros
  • Free cash flow AL up 17.5 percent to 2.1 billion euros
  • Net profit increases to 1.4 billion euros
  • Full-year guidance for adjusted EBITDA AL raised from around 23.9 billion euros to around 24.1 billion euros
  • Group now expects cash capex of 12.9 billion euros in 2019, adjusted from previous guidance of 12.7 billion euros
  • Dividend for 2019 planned to be 0.60 euros

Deutsche Telekom continues to grow apace and has raised its guidance for the current financial year. Revenue grew by 4.8 percent in the third quarter of 2019, passing the 20.0-billion-euro mark in a single quarter for the first time in the company’s history. At the same time, adjusted EBITDA AL rose 5.4 percent year-on-year to 6.5 billion euros. In organic terms, i.e., adjusted for exchange rate effects and changes in the composition of the Group, revenue increased by 1.7 percent and adjusted EBITDA AL by 3.0 percent.

Following the positive trend of the last nine months, the Group raised its full-year guidance. Deutsche Telekom now expects to report adjusted EBITDA AL of around 24.1 billion euros, up from the previous guidance of 23.9 billion euros. Cash capex before expenses for mobile spectrum is expected to amount to around 12.9 billion euros, up from previously around 12.7 billion euros. The main factor driving this increase is the accelerated 5G build-out in the United States. The guidance for free cash flow remains unchanged at around 6.7 billion euros. All these figures are based on constant exchange rates and exclude changes in the composition of the Group. The guidance has been raised on the back of improved results from all operating segments in the first nine months of 2019, as well as the raised average value of T-Mobile US’ guidance. 

“Deutsche Telekom is really powering ahead,” said CEO Tim Höttges. “Earnings increased in all areas of the Group in the first nine months of this year – with some of that growth in the double digits. At the same time, we are investing record amounts.”

Between July and September 2019, Deutsche Telekom recorded growth in free cash flow AL of 17.5 percent against the prior-year period, to 2.1 billion euros. Cash capex before expenses for mobile spectrum remained stable in the third quarter at 3.0 billion euros. Compared with the first nine months of 2018, it increased by 9.8 percent to 10.0 billion euros.

Net profit increased by 23.2 percent compared with the third quarter of 2018 to 1.4 billion euros. Adjusted for special factors, it grew by 7.5 percent.

Deutsche Telekom is adjusting its dividend outlook. The company plans to pay a dividend for 2019 of 60 eurocents per dividend-bearing share. This is also set to be the minimum dividend for the coming years, and will be paid out irrespective of whether the business combination of T-Mobile US and Sprint takes place. All other aspects of the previous dividend strategy remain unchanged. 

The decision to adjust the dividend is based on the following key grounds:

  • The removal of dividend uncertainty in connection with the U.S. transaction
  • The unexpectedly high costs for the mobile spectrum auction in Germany, partly as a result of the artificial spectrum shortage
  • Greater clarity with respect to several spectrum auctions coming up in the United States

Germany – MagentaEINS and StreamOn in high demand

Almost 24 percent of Deutsche Telekom’s broadband customers now use MagentaEINS, up from around 21 percent one year ago. The share of mobile contract customers with MagentaEINS increased from 47 percent to 55 percent. At 4.6 million, the number of customers using these converged products was up 14.2 percent against the prior-year figure. Fixed-network business improved against the previous quarter with 47,000 broadband customer net additions in the third quarter. The positive trend in fiber-optic lines (FTTH, VDSL/vectoring) remained stable, increasing by 534,000 in the quarter just ended. The total number of these fast lines increased by 20 percent within one year to just under 14 million.

In mobile business, the StreamOn option was in strong demand. With StreamOn, customers can benefit from music, gaming, or video streaming services without using up their data allowances. At the end of the third quarter, 2.8 million customers were using this option, up by around 79 percent year-on-year. Growth of 0.7 percent in mobile service revenues was somewhat weaker than previously, due in part to regulatory effects. Revenue in the Germany operating segment as a whole increased by 0.6 percent to 5.5 billion euros, with adjusted EBITDA AL rising by 2.4 percent to 2.3 billion euros.

United States – uninterrupted growth

Record figures, customer boom, and superior network quality. The impressive success enjoyed by T-Mobile US over the last few years continued uninterrupted in the third quarter of 2019. The number of customers increased by 1.7 million to 84.2 million between July and September. 754,000 of these were branded postpaid phone net customer additions. In this most important customer category, T-Mobile US has been recording the strongest quarter-by-quarter growth in the industry for years. Average monthly revenue per customer remained stable at 46.2 U.S. dollars.

Consequently, the key financials grew as well. The company generated revenue of 11.1 billion U.S. dollars in the third quarter, up 3.6 percent year-on-year. Adjusted EBITDA AL increased 3.1 percent to 3.2 billion U.S. dollars.

Europe – growing momentum 

Growth in the European national companies is gathering pace. Revenue increased by 1.0 percent to 3.1 billion euros between July and September, with adjusted EBITDA AL rising by 4.0 percent to 1.1 billion euros. In organic terms, growth was somewhat slower at 0.7 percent for revenue and 3.3 percent for adjusted EBITDA AL, since these exclude the effect of the first-time consolidation of UPC in Austria. Organic growth has accelerated from quarter to quarter over the course of the year.

In the quarter just ended, the companies recorded 288,000 new mobile contract customers and 329,000 customer additions for converged mobile and fixed-network product packages. The number of customers with these converged products grew by 52.0 percent in a year to 4.4 million. 47.5 percent of broadband households use product packages, which is 11.9 percentage points more than in the prior year.

Systems Solutions – clear increase in order volume

T-Systems recorded strong order entry in the quarter just ended. The figure increased by 23.6 percent against the same period of 2018 to 1.64 billion euros, thanks to a large number of deals in the growth areas of classified ICTInternet of Things, and security, as well as in traditional business with telecommunications services and IT infrastructure.

Revenue decreased by 5.5 percent to 1.66 billion euros, with declines being recorded in traditional IT and telecommunications business, due in part to our decision to discontinue unprofitable business areas and contracts. At 144 million euros, adjusted EBITDA AL was on a par with the prior year and thus well on target. The ongoing transformation program is proceeding successfully, the annual target for adjusted EBITDA AL of 0.5 billion euros remains unchanged.

Group Development – business in the Netherlands grows

In the Group Development operating segment, the business in the Netherlands continues to grow. Revenue, earnings, and customer numbers shot up thanks to the takeover of Tele2, but even without this effect, the main performance indicators increased. On this pro forma basis excluding regulatory effects, mobile service revenues increased by 2.6 percent and adjusted EBITDA AL grew by 25 percent to 132 million euros. At the same time, T-Mobile Netherlands won 80,000 mobile contract net additions in the third quarter.

Through the cell tower business in Germany and the Netherlands, Deutsche Telekom now operates 33,300 cell sites in these countries, up 4 percent year-on-year. The tower business generated adjusted EBITDA AL of 142 million euros, up 4 percent on the third quarter of 2018 on a like-for-like basis.

The Deutsche Telekom Group at a glance



Q3

2019

millions of

Q3

2018

millions of

Change

%

Q1-Q3
2019

millions of

Q1-Q3
2018

millions of

Change

%

FY
2018

millions of

Net revenue

20,017

19,104

4.8

59,169

55,395

6.8

75,656

Proportion generated internationally

%

69.9

68.1

1.8p

69.3

67.5

1.8p

67.8

EBITDA

7,314

5,874

24.5

20,476

16,699

22.6

21,836

Adjusted EBITDA

7,490

6,207

20.7

21,654

17,684

22.4

23,333

Adjusted EBITDA AL

6,478

6,148

5.4

18,701

17,501

6.9

23,074

Net profit

1,368

1,110

23.2

3,213

2,597

23.7

2,166

Adjusted net profit

1,420

1,321

7.5

3,932

3,749

4.9

4,545

Free cash flowa

2,913

1,883

54.7

7,596

4,779

58.9

6,250

Free cash flow ALa

2,147

1,828

17.5

5,250

4,613

13.8

6,051

Cash capexb

3,180

3,117

2.0

11,206

9,351

19.8

12,492

Cash capexb

(before spectrum)

3,037

3,047

(0.3)

10,043

9,143

9.8

12,223

Net debtc

78,807

55,473

42.1

78,807

55,473

42.1

55,425

Number of employeesd

211,884

216,606

(2.2)

215,675


Comments on the table:
The new IFRS 16 “Leases” accounting standard has been applied since January 1, 2019. This led to a change in the definition of some of our financial performance indicators. The published prior-year figures were not adjusted; however, we show prior-year comparatives calculated on a pro-forma basis for the redefined key performance indicators “adjusted EBITDA after leases (adjusted EBITDA AL)” and “free cash flow after leases (free cash flow AL)”.
a   Before dividend payments and spectrum investment.
b   Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).
c   First-time application of IFRS 16 “Leases” as of January 1, 2019: The new standard results in a mathematical increase in net debt of 15.6 billion euros. The Company’s financial position remains unchanged by this.
d  At the reporting date.

Operating segments: development of operations



Q3

2019

millions of

Q3

2018

millions of

Change

%

Q1-Q3

2019

millions of

Q1-Q3
2018

millions of

Change

%

FY
2018

millions of

Germany

Total revenue

5,472

5,441

0.6

16,217

16,088

0.8

21,700

EBITDA

2,199

2,093

5.1

6,181

5,949

3.9

8,012

Adjusted EBITDA

2,260

2,222

1.7

6,535

6,430

1.6

8,610

Adjusted EBITDA AL

2,254

2,200

2.4

6,515

6,361

2.4

8,516

Number of employeesa

61,181

63,433

(3.6)

62,621

United States

Total revenue

10,006

9,227

8.4

29,629

26,504

11.8

36,522

US-$

11,120

10,730

3.6

33,286

31,634

5.2

43,063

EBITDA

3,421

2,610

31.1

9,965

7,492

33.0

9,928

Adjusted EBITDA

3,563

2,665

33.7

10,406

7,551

37.8

10,088

Adjusted EBITDA AL

2,874

2,664

7.9

8,424

7,547

11.6

10,084

US-$

3,194

3,099

3.1

9,463

9,009

5.0

11,901

Europeb

Total revenue

3,074

3,045

1.0

8,943

8,752

2.2

11,885

EBITDA

1,172

1,041

12.6

3,244

2,853

13.7

3,757

Adjusted EBITDA

1,196

1,062

12.6

3,355

2,926

14.7

3,880

Adjusted EBITDA AL

1,086

1,044

4.0

3,022

2,878

5.0

3,813

Systems Solutions

Order entry

1,638

1,324

23.6

5,132

4,672

9.8

6,776

Total revenue

1,657

1,754

(5.5)

4,961

5,094

(2.6)

6,936

Adj. EBIT margin (%)

3.0

2.3

0.7p

1.6

0.5

1.1p

0.5

EBITDA

115

85

35.3

223

175

27.4

163

Adjusted EBITDA

175

139

25.9

459

318

44.3

429

Adjusted EBITDA AL

144

143

0.7

363

327

11.0

442





Q3

2019

millions of

Q3

2018

millions of

Change

%

Q1-Q3

2019

millions of

Q1-Q3
2018

millions of

Change

%

FY
2018

millions of

Group Developmentc

Total revenue

704

544

29.4

2,068

1,607

28.7

2,185

EBITDA

479

220

n.a.

1,105

675

63.7

893

Adjusted EBITDA

345

227

52.0

996

691

44.1

921

Adjusted EBITDA AL

269

222

21.2

774

674

14.8

892


Comments on the table:
The new IFRS 16 “Leases” accounting standard has been applied since January 1, 2019. This led to a change in the definition of some of our financial performance indicators. The published prior-year figures were not adjusted; however, we show prior-year comparatives calculated on a pro-forma basis for the redefined key performance indicators “adjusted EBITDA after leases (adjusted EBITDA AL)” and “free cash flow after leases (free cash flow AL)”.
a   At the reporting date.
b   Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.
c   Inclusion of Tele2 Netherlands as of January 2, 2019. Prior-year comparatives were not adjusted.

Operating segments: development of customer numbers in the third quarter of 2019

Sept. 30, 2019

thousands

June 30, 2019

thousands

Change

thousands

Change

%

Germany

Mobile customers

45,598

44,827

771

1.7

Of which contract customers

25,138

24,974

164

0.7

Fixed-network lines

17,996

18,228

(232)

(1.3)

Of which retail IP-based

17,158

16,614

544

3.3

Broadband lines

13,683

13,636

47

0.3

Of which optical fibera

8,231

7,913

318

4.0

Television (IPTV, satellite)

3,544

3,477

67

1.9

Unbundled local loop lines (ULLs)

4,770

4,913

(143)

(2.9)

United States

Mobile customers

84,183

83,052

1,131

1.4

Of which branded postpaid customers

45,720

44,646

1,074

2.4

Of which branded prepay customers

20,783

21,337

(554)

(2.6)

Europeb

Mobile customersc

46,501

46,469

32

0.1

Of which contract customers

27,310

27,022

288

1.1

Fixed-network lines

9,001

8,986

15

0.2

Of which IP-based

8,140

7,961

179

2.2

Broadband customersd

6,587

6,540

47

0.7

Television (IPTV, satellite, cable)

4,919

4,910

9

0.2

Group Developmente

Mobile customers

5,531

5,455

76

1.4

Fixed-network lines

601

578

23

4.0

Broadband lines

601

578

23

4.0


Comments on the table:
a  Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH/B).
b  Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.
c  As of January 1, 2019, the portfolio of M2M SIM cards in Austria was streamlined. 2.4 million customers were deactivated. Prior-year comparatives were not adjusted.
d Starting in Q2/2018, Deutsche Telekom no longer reports the number of retail broadband lines from a technical perspective. Instead, it reports the number of broadband customers. Prior-year comparatives have been adjusted.
e  Customer numbers at T-Mobile Netherlands. Inclusion of Tele2 Netherlands as of January 2, 2019. Prior-year comparatives were not adjusted.

Operating segments: development of customer numbers in year-on-year comparison

Sept. 30, 2019
thousands

Sept. 30, 2018
thousands

Change

thousands

Change

%

Germany

Mobile customers

45,598

43,646

1,952

4.5

Of which contract customers

25,138

25,179

(41)

(0.2)

Fixed-network lines

17,996

18,809

(813)

(4.3)

Of which retail IP-based

17,158

14,493

2,665

18.4

Broadband lines

13,683

13,504

179

1.3

Of which optical fibera

8,231

6,896

1,335

19.4

Television (IPTV, satellite)

3,544

3,291

253

7.7

Unbundled local loop lines (ULLs)

4,770

5,402

(632)

(11.7)

United States

Mobile customers

84,183

77,249

6,934

9.0

Of which branded postpaid customers

45,720

41,161

4,559

11.1

Of which branded prepay customers

20,783

21,002

(219)

(1.0)

Europeb

Mobile customersc

46,501

50,429

(3,928)

(7.8)

Of which contract customers

27,310

26,402

908

3.4

Fixed-network lines

9,001

8,926

75

0.8

Of which IP-based

8,140

7,005

1,135

16.2

Broadband customersd

6,587

6,293

294

4.7

Television (IPTV, satellite, cable)

4,919

4,782

137

2.9

Group Developmente

Mobile customers

5,531

4,004

1,527

38.1

Fixed-network lines

601

227

374

n.a.

Broadband lines

601

227

374

n.a.


Comments on the table:
a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH/B).
b  Inclusion of UPC Austria as of July 31, 2018. Prior-year comparatives were not adjusted.
c  As of January 1, 2019, the portfolio of M2M SIM cards in Austria was streamlined. 2.4 million customers were deactivated. Prior-year comparatives were not adjusted.
d Starting in Q2/2018, Deutsche Telekom no longer reports the number of retail broadband lines from a technical perspective. Instead, it reports the number of broadband customers. Prior-year comparatives have been adjusted.
e  Customer numbers at T-Mobile Netherlands. Inclusion of Tele2 Netherlands as of January 2, 2019. Prior-year comparatives were not adjusted.

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They are generally identified by the words “expect,” “anticipate,” “believe,” “intend,” “estimate,” “aim,” “goal,” “plan,” “will,” “seek,” “outlook,” or similar expressions and include generally any information that relates to expectations or targets for revenue, adjusted EBITDA, or other performance measures. Forward-looking statements are based on current plans, estimates, and projections, and should therefore be considered with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom's control. They include, for instance, the progress of Deutsche Telekom's staff-related restructuring measures and the impact of other significant strategic or business initiatives, including acquisitions, dispositions, and business combinations. In addition, movements in exchange rates and interest rates, regulatory rulings, stronger than expected competition, technological change, litigation and regulatory developments, among other factors, may have a material adverse effect on costs and revenue development. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom's actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom can offer no assurance that its expectations or targets will be achieved. Without prejudice to existing obligations under capital market law, Deutsche Telekom does not assume any obligation to update forward-looking statements to account for new information or future events or anything else. In addition to figures prepared in accordance with IFRS, Deutsche Telekom presents alternative performance measures, e.g., EBITDA, EBITDA AL, EBITDA margin, adjusted EBITDA, adjusted EBITDA AL, adjusted EBITDA margin, adjusted EBIT, adjusted EBIT margin, adjusted net profit/loss, free cash flow, free cash flow AL, gross debt, and net debt. These measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Alternative performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.

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